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Zetter: Hello, I’m Mark Zetter with Venture Outsource. We’re talking with Michael Palma, research manager, consumer device semiconductors and electronics manufacturing services (EMS), with leading technology research and consulting firm, IDC.
In the semiconductor space, Michael is involved with IDC’s enabling technologies team, and he leads IDC’s consumer semiconductor coverage; investigating market opportunities, competitive analysis and development of semiconductor technologies intended for consumer electronics products.
In the EMS space, Michael examines the business strategies, manufacturing relationships and future roadmaps of EMS providers and original design manufacturing (ODM) companies.
Before we begin our conversation, if someone in our audience has suggestions for future conversation topics, or feels there is a particular person they think would be well suited for an upcoming conversation, email us your comments or suggestions at: insight[at]ventureoutsource[dot]com
So, no one can deny the consumer electronics market is dynamic. As consumers, our wants and desires are constantly changing, and many of us want to be the first to have the latest electronics gadget.
Headphones, e-readers, digital music players and tablets are just a few of the items we want. And speaking of tablets, the market is changing, and these changes are impacting the tablet supply chain.
Just as the notebook has virtually displaced the usage of desktop PCs, there is an evident blurring of the lines between notebooks and tablets as tablet makers design in more features, and more power.
Apple is clearly the dominant tablet player. One industry report states Apple has a greater than 25 percent market share, and it’s growing. Meanwhile, Apple’s latest iPad drew record preorders, and since its launch, sales have been brisk.
Some say what a tablet is, and how it will be used, is evolving faster than the PC ever did.
Today we’re talking about tablets. The tablet supply chain and the changing computing landscape, what all this means for OEM tablet makers; semiconductor firms, ODM and EMS manufacturing relationships, and ultimately, the consumer.
In the past year or so the tablet market has been flooded with a slew of Android-based devices, none of which have matched the success of the iPad. But, some believe Microsoft’s Windows 8, due out later this year will give the iPad a run for its money. (Read: Will iPad 3 get killed by Android and Windows 8?)
Michael. First, what are your thoughts on the benefits and challenges when comparing iOS, Android and Windows 8?
And, second, do you feel either Android or Windows 8 can displace Apple as the dominant tablet in the market?
Palma: Thank you, Mark. I guess the first question we’re looking at is on the operating system, and what each [system] brings to the table. The iOS from Apple has really set the bar in this marketplace for what is expected.
The user experience about the user interface with the device; about the types of things you can do with your tablet…and it’s really defined the market and set the bar that every other OEM is competing to try and match.
And so far, it’s been difficult to try and beat that experience that Apple is able to offer with the reliability, and with the level of content and ingenuity of the user interface created by the design team at Apple.
With Android, what you get is a much larger open universe of the products and applications. It’s a bit more free-wheeling. You’re also opening up the tablet experience to people who can’t spend $500 to $800 for an iPad.
It’s really done well in low-cost tablets coming out of white-box manufacturers in Southern China.
[Companies] People have experimented, trying to create an iPad killer application using high-end gaming, powered by Nvidia Tegra application processors, and other firms, such as TI and Qualcomm.
But, then we saw mainstream acceptance really when Amazon launched its Kindle Fire in the fall and started shipping in December of last year, where you got to see some of the benefits of Android; lower cost at a $200 price point, and you get basic video, good access to your content, connectivity…and that’s really set the stage for the alternative to the iPad on the consumer side.
Now with Windows 8, we’re seeing an opportunity for sort of that alternative to the iPad, especially for the enterprise side, where it’s much more of a Windows legacy environment.
And that’s what we’re starting to see, these alternatives…the other nice thing with Windows coming in…
You’ll start to see some serious competition which should help drive some innovation in the marketplace to figure out what is a good user experience and how can you create something that can really compete against the Apple platform.
So, with Windows 8, you’ll see a slew of new devices coming out late summer, early fall, and in the next year for the launch of volume on Windows 8 tablets.
And what we think is, we’ll see the market develop. The question is will Windows be able to develop its ecosystem. And that gets to the second point.
How do you displace Apple as the dominant tablet in the marketplace?
And it comes down to your user interface design, the user experience you can deliver…and that covers everything from security technology, to battery life, to video performance and networking / connectivity performance. But [its] also about the user experience and just how you interact with the tablet.
Do you bring in voice recognition, like Siri, which Apple doesn’t have on the tablet yet? Bring in some gesture recognition into the device? Combine it with other sensors and let it become an excellent game controller?
Those are the issues where you are going to have to compete with Apple.
And the third leg of that is content. Apple has iTunes. Can you build up your content stream?
Android [has] a large development marketplace. Lots of apps and developers out there bringing up solutions.
Can Microsoft present an attractive enough ecosystem opportunity for software developers, especially? Not to mention content owners like the movie studios and music publishers. They already have some of those assets in place. Can they go further?
But, more importantly, can they [Microsoft] get the apps developers to write for a third ecosystem? And that’s the question for us, and how we look and see about how Apple could be displaced.
But on top of all that, it’s just the built-in fan base of the Apple iOS family. It’s so popular it gets its own episode on South Park.
As you were mentioning, people lined up for days in advance and they sold a tremendous amount [of the latest iPad] in the first 72 hours. I forget the exact number, but when you have that much built-in demand for each new generation of product, it really takes some of the risk out of designing the next product.
And that’s the thing. The Android, and the Windows 8, tablet folks can’t bank on that level of demand right out of the box and so it’s a much more risky proposition.
But, that’s what’s required to compete in this market.
Zetter: As tablets gain more processing power, and market share, and new features and software applications are rolled out, how is all of this impacting semiconductor companies in the tablet value chain?
Palma: Great question. It puts a lot of pressure on a lot of different fronts for the semiconductor companies. Especially the apps processor companies – that’s the brains of a tablet.
As more tablets go into the marketplace, people want to bring them into work with them. Well, you need to start building in enterprise-level security features into the hardware, into the processor, and make sure you can protect corporate data when you log in and whatever corporate data that migrates to your tablet is protected in case you lose the tablet or have it stolen.
Other issues as we’ve developed…
Last year, we saw most tablet models on the market with two cameras. Well, the next app is virtual reality, or augmented reality…using those cameras to recognize where you are, and what’s nearby. And you have to deliver content, location-based service information to your system.
“The concern is how do you balance the consumption of power and performance into a platform that’s going to meet the objectives.”
– Michael Palma
So that puts a huge increase on image processing due to that recognition of the image that the system sees.
As we put more load on these applications and others, there’s a greater load in demand for performance.
How do you get the most performance out of that application processor? And more importantly, how do you do it while maintaining, or decreasing, power consumption to protect battery life?
With ever-increasing resolution displays and larger displays, that’s more power consumption for the display. And if that’s just going out for the display, now you have to think about what the processor is going to consume in power.
Its really moving the marketplace where the most concern is how do you balance the consumption of power and performance into a platform that’s going to meet the objectives, and that’s very difficult.
ARM [Holdings] launched an architecture called big.LITTLE using a mix of the latest generation Cortex-A15 processor cores, with smaller cores in -A5 or in -A9, to do other tasks…to try and get the balance right within the processor, of what it has to do, for which task, at the lowest possible power consumption.
That doesn’t include the graphics processor unit and other elements and other hardware accelerators.
On top of all that, there’s the software ecosystem. Not so much the individual apps, but all the rest of the software stack, the operating system.
When Google comes out with a new version of Android, the majority of the engineering talent for that operating system comes from outside Google.
It’s usually shared by the OEM, maybe the service provider, and most importantly, the semiconductor provider. They’re developing the operating system. They’re developing the APIs and middleware on top of that.
Each of the leading processor companies has a large software ecosystem, and its own large software development budget, to get products out. They need to be able to offer a solution that’s got an operating system that runs on it, that has the API so that programmers can write and take advantage of specific elements in the silicon to get the best performance. They’re putting out the security infrastructure, the augmented reality solutions.
All those elements that we think are great and love to use on our tablet needs both the application and the software beneath the application to make it all work. And that’s the responsibility of the semiconductor company for the majority of the marketplace.
Otherwise, they’re reusing elements from their larger software ecosystems.
If you look at Texas Instruments – who has the Amazon Fire and, the RIM Playbook and other products – they have over 300 software partners. That’s on top of their own software development work in a lot of these spaces.
Zetter: That’s sizable.
Palma: Yeah, and it’s getting to the point where if we look at someone who’s looking to make a big entry into the tablet market, Intel, who is the second or third largest software company by the number of programmers that work for the company.
That gives the scale of the investment that happens in all of this, and the role of the semiconductor company.
That’s not even thinking about the sensors and the devices and the power management systems and other elements, the connectivity stacks. We’ve seen the shift of core hardware technology and software technology for systems really shift to the semiconductor providers over the last ten years.
Zetter: What’s in store for the semiconductor forecast?
Palma: Well, what we’re looking at is it’s still a continued growth story. Our five-year average growth rate for tablets is about 48 percent per year through 2015. That’s from 2010 to 2015, we think an average of 48 percent.
We saw a large jump in 2011. The growth through the rest of 2015, we’re still looking at 20 to 30 percent a year growth, just in tablet shipments.
When you look at the semiconductor opportunity, a little bit lower growth through 2015. It’s about 37 percent, and a large part of that is tied to the falling price for storage.
Right now we see storage running somewhere around 16 gigabytes on an average basis per system. And we see that growing over time.
But the price of memory is falling so fast that it has the overall market growing a little bit slower than tablets.
But then if you look at other areas, revenues for apps processors for tablets is going to grow much faster. If you look at the sensors for devices, those are going to grow much faster.
So, for example, let’s say, for the processor elements, that’s going to grow to about a $2 billion opportunity in itself in 2015. The sensors, we see growing to close to $1 billion by 2015 – 2016. So it’s a very significant opportunity. Very attractive.
And it’s really at the center of how we think the market’s kind of evolving into how we will see the next billion users access the Internet over the next several years. Especially in developing markets, a tablet may be much more popular than a PC, so it’s a very healthy market.
Zetter: [Tablet] It’s certainly easier to acquire from a cost standpoint in most instances, and a much more mobile device than a PC, even a notebook.
Palma: Right, exactly. And then from a maintenance perspective, right now at this stage, we’re not seeing the same sort of user maintenance of tablets as we saw with PCs.
Antivirus software will be designed to be automatically downloaded. You won’t need to click and update it. There’s a lot fewer blue screens of death on tablets than on PCs.